Budget math to ensure fiscal consolidation

The government is worried about the current state of the fisc, although the macro economic fundamentals are strong. The economic survey recognises this while making out a strong case for fiscal consolidation in the near term.

Finance minister P Chidambaram’s budget arithmetic is set to reflect the UPA’s commitment to fiscal consolidation. He has to target a gross fiscal deficit of 4.2% of the GDP and revenue deficit of 3% of the GDP, according to the legal requirements arising from the Fiscal Responsibility and Budget Management Act. Going by this legislation, the deadline for wiping out revenue deficit is March 1, 2008.

The survey has pitched for reforms in tax and expenditure administration to achieve specific milestones for fiscal adjustment. At the same time, it concedes that “mobilising popular support for such reforms is a challenge in the absence of an impending crisis�. Pruning subsidies could be one such measure.

Coalition compulsions have forced the UPA to extend the deadline for phasing out the subsidies on LPG and kersosene by another 2 years — upto 2007. It has also made a commitment to step up public investment in agriculture and social sectors.

However, with just eight months to go for this fiscal, the government would not be in a position to substantially step up expenditure allocations. With state budgets already being passed and plan allocations have already started rolling.

The focus of the forthcoming budget would be more on the policy direction, said official sources. Finance minister Chidambaram would nevertheless attempt to project an improved picture of the fisc, on the back of additional resource mobilisation through changes in the tax rates.